Coinbase has suspended its plans to acquire FTX Europe, a
move that was aimed at enabling it to enter into the European derivatives
market. This turn of events happened as a response to the regulatory challenges
in the US crypto market.
Coinbase targeted FTX Europe due to its profitable
derivatives operations under the Cyprus regulatory license. As the exclusive
provider of perpetual futures in Europe, FTX Europe has a substantial share of
the region's trading volumes. Its derivatives transactions constitute nearly
75% of the worldwide crypto trading volume, which witnessed a robust growth of
13%, reaching $2 trillion in June.
Coinbase Faces Regulatory Challenges
FTX Europe's profitability attracted a number of potential
suitors following its parent company's declaration of bankruptcy in 2022. Among those interested in the deal are industry players like Crypto.com
and Trek Labs.
Derivatives are financial instruments linked to the value of
underlying assets such as Bitcoin and Ether. They have gained significant
prominence within the crypto sphere. As highlighted by crypto analytics firm
Kaiko Research in a report from the second quarter of the year, derivatives
trading has gained more traction than spot trading.
For Coinbase, this strategic acquisition would have acted as a
countermeasure to its recent decline in revenue from spot trading, as indicated
by its report for the second quarter, which recorded $707 million in revenue,
with $327 million attributed to spot trading. This was a drop of 13% from the
In August, Coinbase obtained regulatory approval in the
United States to offer Bitcoin and Ether futures through its Commodity Futures
Trading Commission-regulated exchange, FairX.
Expanding Global Footprint
However, a growing wave of regulatory scrutiny targeting
cryptocurrency exchanges has compelled Coinbase to halt its acquisition of FTX
Europe. Regulatory challenges have emerged as an ongoing concern for the
company as it strives to expand its global footprint.
Meanwhile, the deadline for the sale of FTX Europe has been
extended to September 24, granting potential suitors a brief window to finalize
their bids. FTX itself faces the task of selling off its assets as it grapples
with debts of approximately $9 billion, for which it recently received court approval
to liquidate assets.
Interestingly, Coinbase's change of direction coincides with
its achievement of regulatory approval to introduce federally regulated
cryptocurrency futures trading for eligible US customers. This regulatory nod
holds immense significance, as it opens up the cryptocurrency derivatives
market to U.S.-based investors, a previously untapped avenue for them.
This article was written by Jared Kirui at www.financemagnates.com.